Free calculator · IRS rates

Does an S-corp save your LLC money after the extra costs?

Take $80,000 of profit and a $48,000 salary: the S-corp cuts the payroll tax, then a payroll service and a second tax return take a bite out of what it saved.

Rates checked Nov 5, 2026IRS Topics 554, 751 and 560

Run your numbers
LLC owner: self-employment tax $11,304 S-corp: payroll tax + extra costs $9,344 $1,960 a year saved at $80,000 profit Dashed block: $2,000 of payroll service and extra tax prep

Short answer

On our example numbers (a salary of 60% of profit and $2,000 a year of extra costs), an S corporation starts to pay at about $40,500 of yearly profit. Below that, the default LLC costs less. At $80,000 it saves about $1,960 a year.

This is an estimate, not tax advice. Confirm your numbers with a CPA before you elect S-corp status.

Checked against the IRS and Social Security rates on November 5, 2026.

What would you save as an S-corp?

Example values: replace with yours

The three cost lines are examples, not quotes. Use your own.

Your yearly result

$0LLC self-employment tax
$0S-corp payroll tax on your salary
$0Extra S-corp costs
Net yearly difference (LLC tax minus S-corp tax and costs)$0

  • Self-employment tax 15.3%, on 92.35% of profit IRS Topic 554, Nov 5, 2026
  • Payroll tax 7.65% each side IRS Topic 751, Nov 5, 2026
  • 2026 Social Security wage base $184,500 IRS Topic 751, Nov 5, 2026
  • Medicare 2.9% and 0.9% extra over $200,000 (single) IRS Topic 560, Nov 5, 2026

The line bends near $200,000 of profit because an LLC owner's Social Security tax stops at the wage base while the S-corp salary keeps paying. Income tax, the QBI deduction and federal and state unemployment tax on the salary are not included. This is an estimate, not tax advice: confirm it with a CPA before you elect.

How does the math work?

  1. As an LLC, all profit carries self-employment tax

    Self-employment tax is 15.3% of 92.35% of your profit, with the Social Security part capped at the wage base. See the IRS default for LLCs.

  2. As an S-corp, only your salary carries payroll tax

    You and the company each pay 7.65% on the salary. The rest of the profit passes through without payroll tax. Electing takes Form 2553 by a set date: S-corp election deadline.

  3. Subtract what the S-corp costs to run

    Payroll service, the extra Form 1120-S return and any state S-corp or franchise tax come off the tax you saved. What is left is the net difference. For a rough sense of the setup costs, see the LLC cost breakdown.

5.0 on Google 17 reviews Vinny and RayFounders, Fort Lauderdale, since 2023 (888) 419-0771Call or text Vitez, our AI assistant Filed right, or we fix it freeThe exact total shows before you pay
Start with the LLC

Need the LLC before you can elect anything?

We file it, and our compliance guides cover the S-corp election that follows.

See LLC formation

Common questions

When does an S-corp start to pay for an LLC owner?

It depends on your salary and your extra costs. On the example values here, a salary of 60% of profit and $2,000 a year of costs, it starts to pay at about $40,500 of profit. Change the cost lines and the break-even moves.

What is reasonable compensation?

The IRS says an S corporation must pay a shareholder-employee reasonable compensation, and that the key is what the shareholder-employee did for the company. There is no fixed percent. Pay too little and the savings can be challenged.

Does this include income tax or the QBI deduction?

No. It compares only self-employment tax with payroll tax, then subtracts the extra costs. Income tax and the QBI deduction are out of scope, so ask a tax professional about them.

Why do the extra costs matter so much?

They are fixed amounts. A payroll service, a second tax return and any state S-corp or franchise tax cost the same at $40,000 of profit as at $150,000, so they swallow the saving on smaller profits.

Can any LLC elect S-corp status?

An LLC is an eligible entity, and it can elect if it meets the S corporation tests. The election deadline guide lists the tests and the Form 2553 date.

Is this tax advice?

No. The numbers here are an estimate built from IRS rates, not tax advice. Vermilion Vitez gives general information only. Confirm your numbers with a CPA (certified public accountant) before you elect S-corp status.

Sources 4 links, opened November 5, 2026
  1. IRS Topic 554, Self-employment tax (12.4% + 2.9%, 92.35% of net earnings)
  2. IRS Topic 751, Social Security and Medicare withholding rates (6.2% and 1.45% each side; 2026 base $184,500)
  3. IRS Topic 560, Additional Medicare Tax (0.9% over $200,000 single, $250,000 joint, $125,000 separate)
  4. IRS, S corporation compensation and medical insurance issues (reasonable compensation; page updated March 3, 2026)

All rates checked November 5, 2026. Educational, not legal or tax advice.

For the side-by-side in plain English, read the LLC vs S-corp guide.